Media sources are reporting that a military junta has taken power in Burkina Faso following the arrest of interim President and Prime Minister. The transitional government has also been disbanded, only four weeks before elections (planned for October 11). The military guard that is leading the coup is the RSP (Régiment de sécurité présidentielle), loyal to the ousted leader Compaore who has fled to Ivory Coast almost a year ago.

Demands from the RSP have not yet been tabled. While there have been no reported impacts to mining operations, companies with exposure to Burkina Faso are likely to face headwinds in the near term. Among producing companies IAMGOLD and Endeavour Mining have the largest exposure to Burkina Faso at 45% and 32% of NAV, respectively.

The Canaccord Genuity Metals & Mining Team notes that for IAMGOLD, approximately 45% of NAV and 43% of YTD gold production is sourced from Burkina Faso and is its lowest cost owner-operated asset. Endeavour Mining is less exposed at 32% of NAV; however, only 13% of 2015’s estimated gold production is sourced from the country. In the Team’s opinion, Hounde is already heavily discounted by the market and a positive construction decision is unlikely in the current market environment. The bigger impact would be Youga which is in production but only 1% of NAV.

Endeavour has a solid operating base in Mali, Ghana, and Ivory Coast, and we believe that the coup should have minimal impact to the company in the near term. Streaming companies Franco-Nevada and Sandstorm Gold both have streams on True Gold’s Karma project in Burkina Faso; however, company-wide exposure for the streamers remains small. For Franco-Nevada, Karma represents 1.7% of NAV.

In Sandstorm’s valuation, Karma represents approximately 6% of NAV; however, this would decline to 4% if you net out the money that still needs to be paid to True Gold. If anything, this perfectly showcases what royalty/streaming companies are all about – a defense against government coups and instability and the general risk. Development companies Roxgold and Orezone have 100% exposure and may see development delays depending on how the coup impacts logistics and workers in the country (via general strikes, for instance).

COMPANY DESCRIPTION:
Echelon is a leading provider of networking control and
utility technology solutions, specializing in advanced
metering infrastructure (AMI) and distributed control
products for the electric utility market.
All amounts in US$ unless otherwise noted.

Sustainability — Energy & Power Technologies
TRANSFORMATION LOOKS
INCREASINGLY TANTALIZATINING;
MAINTAIN HOLD, TARGET TO $4.50
Investment recommendation
While the near term remains in transition, we continue to be impressed by
the fiscal discipline, a modest improvement in utility prospects and the
launch of the more pointed Internet of Things platform later. We are
clearly looking for tangible signs of traction (design wins, JV’s, M+A) to
become constructive on shares. Maintain HOLD.
Investment highlights
 The strategic plan continues to move forward, as Echelon embraces
the emerging IoT/M2M market, leveraging its sizable installed base,
brand recognition, and history of innovation. We look for new
products to emerge this year, while aggressive balance sheet control
keeps the opportunity firmly intact.
 Q1 sales are targeted at ~$16-18M (vs. our $17.25M), with non-GAAP
margins at ~46.5-48.5%. Non-GAAP LPS is forecast at ~$0.08-0.13.
Importantly, cash stays firm (~$57M), supporting potential M&A
(Internet of Things) and working capital needs.
 Our 2014 rev/GAAP/pro-forma estimates go to $72.8M/$(0.53)/$(0.34)
from $72.8M/$(0.47)/$(0.29). We introduce 2015E at
$90M/$(0.43)/$(0.25).
Valuation
Our $4.50 price target (from $3) is derived using an EV/sales multiple of
1.5x (consistent with peak/trough in the legacy smart grid market) off our
2015 sales estimate of $90M.
Risks: Near-term financial losses, long and lumpy utility sales, nonresidential
building/leasing trends.

COMPANY DESCRIPTION:
Caracal Energy Inc. is a Calgary-based E&P focused on the Republic of Chad. By leveraging existing discoveries in the Doba and Doseo basins of southern Chad, the company has built a strong reserve base with a large inventory of prospective locations. The company holds a large contiguous land position, consisting of 6.45 million gross acres spanning three production sharing contracts (PSCs).
All amounts in £ unless otherwise noted.

Investment recommendationCaracal released a positive operational update highlighting results from Badila-3 and Mangara-4 and 5. The company confirmed that production facilities are in place and that the system has been loaded with oil in advance of first oil; production is expected to commence later this month once transportation agreements have been finalized and signed. With a projected return of 65% to our target, we reiterate our BUY
recommendation and £6.60 target price.Investment highlights
 A day after Caracal provided updated net 2P volumes of 50.6 million barrels (NPV $1.4 billion), the company announced a new discovery
that should add incremental reserves at Mangara in 2013.
 Two high-impact exploration wells are planned over the coming quarter; Krim (offsetting Mangara) will spud in August and Bitanda
(offsetting Badila) will spud in September 2013.
 A second rig has arrived and Badila-4 will spud at the end of July.Valuation
We used a DCF model to initially estimate 3P NAV of $12.05/share which we discounted in assessing our $10/share (£6.60/share) target
price. From a valuation perspective, the company’s recently published 2P reserve value now aligns with our target.Risks
Execution in Chad remains the company’s primary risk in unlocking its value. As well, there is no assurance that any of the identified resources
will mature into a reserve classification. Current development scenarios are a “best estimate” and could change with new information.

Africa Oil released results from its Twiga South-1 exploration location on Block 13T in Kenya.

The well encountered 30 metres of net oil pay in the primary Tertiary sandstone reservoirs, versus 143 total metres at Ngamia-1. With seismic showing a potential sedimentary-basin thickening versus the Ngamia-1 discovery, there were expectations of significantly higher pay. The market responded negatively to the news, despite the announcement of a new fractured play below 2,272 metres, where oil and wet gas was encountered over a gross interval of 796 meters. Over the next 4-8 weeks, a series of flow tests will be conducted at Twiga before the rig returns to Ngamia-1 for testing.

It will be difficult to analyze the fractured section unless the company is setup for longer-term production testing, and with such a large gross interval, results will depend on what is isolated over the test period, as well as equipment limitations on volumes. The Paipai-1 well on Block- 10A is drilling, with results expected by year-end.

This higher-risk Cretaceous/Jurassic prospect spudded on September 29, 2012 and TD is expected at 4,112 metres. The company estimates a 10% chance of success and gross prospective oil resources ranging 45-315 mmbl. However, Canaccord Analyst Brown believes faulting may have aterswept the zone. The Sabisa-1 well on the South Omo Block will commence drilling in Ethiopia by year end. Sabisa is testing the “North String of Pearls” concept.

Africa Oil has identified over 100 significant prospects and leads and will have three rigs active throughout 2013. Brown believes financing will be required by Q1/13 to keep pace with drilling.

Overall value from the current drilling campaign is worth over 15 per cent of the current share price, it added.

Significantly, Tullow is reviewing offers for its Asia business unit, which could also unlock value and has implications as the explorer moves forward.

“While relatively small, we think more significant and greater value disposals are conceivable as management has discussed focussing on assets where it can add significant value via the drill bit,” Morgan Stanley said in a note to clients.

It remains ‘overweight’ on the stock, which it reckons is worth 1,780 pence a share.

At 10am the stock was changing hands for 1,391 pence, up 6 pence on the day.

Earlier, Tullow said its financial performance was in line with City forecasts and it remains on target to deliver average net production of 80,000 to 84,000 barrels of oil equivalent per day (boepd) for the full year.

The group’s interim management statement covering the second half of the year said operational and financial performance has remained strong.

In Ghana, the production capacity of the Jubilee field has been ramped up and is expected to exceed 90,000 bopd (gross) by the end of the year, while in Kenya, the second exploration well in the Lockichar Basin has successfully encountered oil, which has further de-risked the exploration prospec

ts in the basin. Additional exploration drilling and testing results across Tullow’s Kenyan and Ehtiopian assets are expected before the end of the year.

Forecast capital expenditure for 2012 remains in the region of $2.0bn. As of October 31st, net debt is around $0.9bn and unused debt capacity is in the region of $2.2 billion.

“Growing production and cash flow from the Jubilee field continues to strengthen Tullow’s financial base as we look forward to further significant exploration and development programmes in 2013,” the group said.

Africa Oil (AOI : TSX-V : $10.01)Kenya became the latest country to raise its country risk, announcing plans to boost profits from natural resources exploration.

According to a Reuters article, Kenya is seeking a 25% stake in the production activities of oil & gas companies operating in the east African nation. The proposal, announced by Kenya’s energy minister, i s one of several the government has put forward in the past month to increase the state’s take from oil and gas resources, including new capital gains tax rules, a more competitive licensing process and higher fees for petroleum explorers.

Currently, most of Kenya’s contracts with oil explorers give state-owned National Oil Corporation of Kenya (NOCK) a 10% stake in the production business once commercial quantities of oil or gas are found. Under the current structure, this means that NOCK contributes 10% of production costs and receives 10% of profit. However, according to the article, Energy Minister Kiraitu Murungi told reporters that the government now wants companies to give NOCK an initial 10% stake, increasing to 25% once production has started.

An oil & gas expert at PricewaterhouseCoopers, commented that it is unclear whether the rule would scare off potential producers because contracts are based on one-on-one negotiations with companies and the Ministry of Energy. He believes that “It depends on how it’s structured and how it’s sorted out” and that he thinks “people will get wary if it’s getting something for nothing. If there’s a fair share of whatever somebody has spent…I think people will be pragmatic and see it as something reasonable. Kenya’s oil and exploration boom has been fuelled by gas discoveries in Tanzania and Mozambique and oil discoveries in Uganda. Notably Tullow Oil and Africa Oil discovered oil in the Ngamia-1 well in Kenya in March. The Ngamia-1 exploration well in Kenya encountered an initial 20 metres of net oil pay, followed by another 80 meters in deeper zones.

Canaccord believes successful flow testing on Ngamia-1 may open up a “string of pearls” of look-a-like geological anomalies that could exceed the 2.5 billion barrels discovered in Uganda.

In October, Tullow and Africa Oil encountered oil in a wildcat well known as Twiga-1 on onshore Block 13T, about 30km west of the Ngamia-1 well. The commercial viability of both finds has yet to be ascertained. Also in Kenya, Tullow and Pancontinental Oil & Gas announced in September that their license consortium’s operator Apache (APC) had found gas in the shallow offshore well Mbawa-1.

The company and Tullow confirmed that the Twiga South-1 well on Block 13T encountered oil. Results are expected in early to mid-November once target depth has been reached and necessary sampling and analysis have been completed.

The African news source stated that Twiga South encountered 30 m of net pay. Africa Oil and Tullow have not confirmed any net pay figures. However, Canaccord Analyst Christopher Brown believes the oil encountered to date is most likely from intervals within the Upper Lokhone sand section, versus the primary-target lower zone. Twiga South is a follow-up prospect to Ngamia-1, which encountered 100 m of net pay over several intervals in the Upper Lokhone Sand section, as well as an additional 43 m in the lower zone (although the company stated that net pay in the lower zone was interrupted by faulting).

Thus, Brown believes the market is anticipating results from Twiga South that are as good as, if not better than, Ngamia-1. He also notes that the target formations at Twiga South-1 are deeper than those encountered at Ngamia-1. Brown expects that the company is currently drilling through the Lokhone Shale and should penetrate the deep zone shortly. Twiga South-1 is a key prospect in demonstrating the repeatability of the Ngamia-

Estimates are at 59 mmbbl. Once net pay has been assessed and publically released, Brown expects Africa Oil to announce a secondary equity issuance. He believes the company will issue a minimum of $200 million. Flow-test results from Twiga South- 1 or Ngamia-1 will likely follow the equity issuance. The higher-risk Paipai-1 Cretaceous and Jurassic prospect is currently drilling. Paipai-1 spudded on September 29, 2012, and TD is expected at 4,112 m. The company estimates a 10% chance of success.